State of the World 2008: Innovations for a Sustainable Economy

Environmental issues were once regarded as irrelevant to economic activity, but today they are dramatically rewriting the rules for business, investors, and consumers. Around the world, innovative responses to climate change and other environmental problems are affecting more than $100 billion in annual capital flows as pioneering entrepreneurs, organizations, and governments take steps to create the Earth’s first “sustainable” global economy.

In State of the World 2008: Innovations for a Sustainable Economy, researchers with the Worldwatch Institute and other leading experts highlight an array of economic innovations that offer new opportunities for long-term prosperity. For example:

In 2006, an estimated $52 billion was invested in wind power, biofuels, and other renewable energy sources, up 33 percent from 2005. Preliminary estimates indicate that the figure soared as high as $66 billion in 2007.

Carbon trading is growing even more explosively, reaching an estimated $30 billion in 2006, nearly triple the amount traded in 2005.

Some of the most powerful players in today’s economy have announced breakthrough environmental initiatives in the past two years, including Citigroup, Goldman Sachs, Kleiner Perkins Caufield & Byers, McKinsey & Company, and Wal-Mart. And many large companies are putting their political muscle where their investment capital is. Twenty-seven major corporations, including Alcoa, Dow Chemical, Duke Energy, General Motors, and Xerox, are actively urging the U.S. Congress to pass legislation regulating greenhouse gas emissions, something that would have been unthinkable two years ago.

“We have the tools today to steer the global economy onto a sustainable path.”

Another sign of dramatic change is the 575 environmental and energy hedge funds now in existence, most of them formed in the last few years. “Clean tech” has rapidly grown to be the world’s third-largest recipient of venture capital, trailing only the Internet and biotechnology. And 54 banks, representing 85 percent of global private project finance capacity, have endorsed the Equator Principles, a new international standard of sustainability investment.

State of the World 2008 cites recent studies that conclude that the damage from global climate change could equal as much as 8 percent of global economic output by the end of this century. The report also notes that, according to the World Bank, some 39 countries experienced a decline of 5 percent or more in wealth when accounting measures also included environmental losses, such as unsustainable forest harvesting, depletion of non-renewable resources, and damage from carbon emissions. For 10 countries, the decline ranged from 25 to 60 percent.

Reforms Needed

To avoid economic collapse at the global level, the authors of State of the World 2008 call for major reforms of government policy to steer investment away from destructive activities such as the extraction of fossil fuels and toward a new generation of environmentally sustainable industries. Specific recommendations include making prices tell the ecological truth by reducing subsidies and adopting environmental taxes. The report also urges a full assessment and valuation of the “free” services that nature provides to the human economy and describes efforts to create markets to protect biodiversity

“Continued human progress now depends on an economic transformation that is more profound than any seen in the last century.”

“We have the tools today to steer the global economy onto a sustainable path,” say project co-directors Gary Gardner and Tom Prugh. “The task now is to bring them together and scale them up so that they become the norm across today’s economies.”

State of the World 2008 finds growing evidence suggesting that the global economy is now destroying its own ecological base. It quotes former World Bank chief economist Nicholas Stern, author of the acclaimed Stern Review on the economics of climate change, who describes the changes now under way in Earth’s atmosphere as “the greatest and widest-ranging market failure ever seen.”

“Continued human progress now depends on an economic transformation that is more profound than any seen in the last century,” says Worldwatch president Christopher Flavin. “We should be practicing a sustainable approach to economics that takes advantage of the ability of markets to allocate scarce resources while explicitly recognizing that our economy is dependent on the broader ecosystem that contains it.”